As we enter the 2006 hurricane season the energy sector remains mired
in short term uncertainty. The Gulf of Mexico
still has roughly 10-15% of both crude oil and natural gas shut in
from last year's storms. The impact on supply - if any - from
this years storms remains to be seen. Historically most severe
storms form in August, so we have several months before peak storm season.

Politically it appears the fuse is on a �slow burn� in a handful of
countries critically important to the world's energy supply:
Iran, Iraq, Nigeria, Russia, and Venezuela. Throw
Bolivia in the mix, with the trend in Latin American elections, and the
short term risks to supply multiply.

From a weather standpoint spring has been very warm in the U.S. compared to historical norms, which increases the odds that summer
will be above average temperature wise. With the electrical grid
relying increasingly on natural gas �peaker� plants to meet
incremental electrical loads created by air conditioning demands
the uncertainly extends to the demand side of the energy equation.
Natural gas storage is above normal for this time of year, but
supply interruptions or demand spikes can change that equation quickly.

The following developments and trends indicate the long term trends in
the energy sector remain attractive:

April 2006 was the warmest April on record in the U.S. since record keeping began in 1895 according to Dr. Jeff Masters.
The U.S. has now had two "warmest ever" months this year, January
and April. Globally, April ranked as the 7th warmest April on
record, and the period January through April ranks as the 6th
warmest such period on record globally.

Masters notes that that the entire tropical
Atlantic region where hurricane formation occurs was warmer than
average during April, but he expects no early start to the
hurricane season as strong upper level winds will reduce the
chance of a tropical storm forming in the Gulf the first two weeks
of June. He predicts the hurricane season will see
�significant� activity.

Accuweather also predicts an active hurricane season, with one in
six Americans who live on the Eastern Seaboard or along the
western Gulf of Mexico being impacted. The graphical representation of their forecast is at right.

Dr. Jeff Masters also prepared a summary of long term forecasts
versus the average hurricane season last month. NOAA indicates an
80% chance of an above normal season, 15% chance of a near normal
season, and a 5% chance of below normal activity. Note August is
the month went the most hurricanes form according to historical
data (chart at right from NOAA).

Forecasting firms are all looking for an above active hurricane season according to Dr. Masters:

Investment
banker Matthew Simmons included the chart of gasoline demand at
right in one of his recent presentations to illustrate the demand
for gasoline in the U.S. continues a long term climb. Occasionally a commentator will note
that the U.S. is becoming more energy efficient, but the long term trend in
total gasoline usage is clear.

� China's demand for crude oil rose at its
fastest pace for two years in April with estimated consumption
up10.8 per cent year-on-year. U.S. demand for crude oil, over the longer term, also continues to
climb (chart by investment banker Matthew Simmons)

President
Vladimir Putin announced the creation of a Russian oil and gas
bourse along with his intention to convert the ruble into a
convertible currency that would be used for the trade. Russian oil
exports make up 15.2% of the world's export trade in oil. The
bourse is scheduled to begin trading in June. The bourse is
expected to impact both energy prices and the U.S. dollar.

� Opec will meet to discuss oil production quotas this
week in Venezuela. Most experts expect the production quotas to remain unchanged.
Venezuela will spend $5 million to host the meeting � 20 times higher than
the cost of the normal Vienna meetings. It is expected Venezuela leaders
will attempt to use the meeting as a political forum.

A top Iranian lawmaker said that Iran should reevaluate its
continued membership in the Organization of Petroleum Exporting
Countries in view of the organization's continuing demands for
higher production that often overlook the long-term benefits of
reduced production on oil reservoirs. He said the organization's
call on its members to raise their production jeopardizes the
overall yield of oil from reservoirs in the long term. OPEC should
be focused on preserving the long term viability of the member�s
reserves, not on reducing global oil prices by pumping excess supplies.

Iraq has the world's third-largest proven oil reserves. Before the
invasion in March 2003, Iraq was producing 2.5 million barrels of oil a day. In 2005,
production was down to about 1.8 million barrels a day. So far,
the outlook for 2006 is little better.